REPORT.

ALBANY, February, 1872.

SIR,-In pursuance of an act of the Legislature of the State of New York, passed April 20th, 1870, the undersigned were appointed by the Governor, commissioners "to revise the laws for the assessment and collection of taxes," and in discharge of their duties, they submitted in February, 1871, a report, embodying a review of the existing system of State or local taxation; an outline of a new system; and reasons in detail, which seemed to the commissioners sufficient to warrant them in recommending such new system to the Legislature and the people of New York for adoption.

As the proposed new system of local taxation involved a radical change in existing laws, the commissioners did not ask or expect any immediate action; but preferred, and with the concurrence of the Executive, recommended that the whole subject should be laid over for at least a year, in order to afford time to the people of the State to consider the nature and the bearing of the facts submitted; and to decide whether they preferred to retain the present system-annually becoming more ineffective, unjust and unequal-or adopt the system of the commissioners, as likely to prove remedial for defects in existing laws, which have now become a matter of almost general acknowledgment.

In this view the Legislature of 1871 so far concurred, that no official action was taken, further than to order the printing of the report for distribution to the people of the State of New York, and to the Legislatures of other States, from whom application for copies were made,* and to authorise

* Besides the edition of the report of the commissioners ordered by the Legislature, two other editions have been printed and issued by private parties; one by Messrs. Harper & Bros., of New York, with notes additional to the official report; and another in England, the last with a preface, under the direction of the Cobden Club, of London, for circulation or gratuitous distribution among the people of Great Britain,

The Problem
Involved.

the commissioners to prepare and submit to the Legislature of 1872, a code, framed in accordance with their recommendation. This authorisation, passed May, 1871, reads as follows:- "And the said commission are directed to report, for the consideration of the Legislature, at its next session, a draft of a tax code or law, with estimates of expenses and collection thereunder."

In accordance, therefore, with the instructions given in the act as above quoted, the commissioners have now the honour to submit the draft of a code of laws for the assessment of taxes in the State of New York; meaning thereby State, county, city and town taxes, and would respectfully recommend the same to the Legislature and people of the State of New York for examination and adoption.

But, as prefatory to so doing, they desire again to submit in brief the reasons of their recommendations; an easily understood analysis of the principles upon which the code prepared by them has been founded; and a prospective exhibit of its method of working; and this more especially, because, notwithstanding the extensive circulation by the Legislature of the former report, it seems certain that a very large portion of the community has, as yet, no clear and definite comprehension of the nature of the reforms proposed by the commissioners, and of the intimate relation which a system of taxation sustains to the growth and development of a State, and to the mutual interests, comfort, and happiness of each individual of its population.

The problem involved in any system of taxation is the raising of money from the people or property of a State or community, for defraying the expenditures incident to the maintenance of government, and for the general organisation and well-being of society. The command of revenue being furthermore absolutely essential to the existence of government, the power of every complete sovereignty to compel contributions, or as we term it, "to tax,"* is generally held to be unlimited, and only restricted against abuse by the fundamental structure of the government itself. +

* A tax is a contribution imposed by government on individuals for the service of the State. It is distinguished from a subsidy as being certain and orderly, which is shown in its derivation from the Greek taxis, ordo, order or arrangement.-(Jacob. Law Dic.; Bouvier Law Dic.)

"The power to tax rests upon necessity, and is inherent in every sovereignty. No constitutional government can exist without it; and no arbitrary government, without regular and steady taxation, could be anything but an oppressive and vexatious despotism, since the only alternative

Powers of the

The separate States of the Federal union not being, how- Limitations of ever, absolutely sovereign, are limited in their exercise of the the Taxing taxing power by certain conditions, expressed or implied in States. the constitution of the greater sovereignty, namely, that of the United States; as, for example, in respect to agencies or instrumentalities of the Federal government; imported goods in original packages in the hands of the merchant importer; exports to foreign countries; inter-State instruments; goods in transitu, and the like; while, on the other hand, the exercise of the taxing power by the Federal government in respect to distinctively State agencies has been declared by the Federal courts to be inconsistent with the principles upon which the federation of the States has been established.

But above all constitutional or other artificial restrictions, each State or community is virtually under the obligations of a higher law to establish and maintain a tax system within the range of its powers, which will insure justice or equality, certainty, efficiency, and economy; for the reason that it is contrary to the material interests of each such State or community, and contrary to the morality of its people, to do otherwise.

(The discussion of the province and scope of taxation in general; of the limitations of the taxing powers of the Federal and State Governments; of the effect of the Fourteenth Amendment to the Constitution of the United States in abridging the control of the States over the property of their citizens ; and of certain recent legal decisions; being a separate department of the subject under consideration, and one not more pertinent to New York than to all the other States, has been transferred to a supplement to this report, to which attention is requested.)

With this brief review of the nature, necessity, and limitation of the powers of taxation as exercised by the States, let us next inquire as to the actual condition of affairs in respect to taxation in the State of New York, and in the other States, so far as the latter furnish experience pertinent and illustrative of the special subject of our inquiry.

And first, we find that the system of taxation existing in New York, in common with most of the other States, has been based and built up on the theory, that the raising of revenue to meet public expenditures, according to the three

to taxation would be a forced extortion for the needs of government from such persons or objects as the ones in power might select as victims." -(Cooley's Constitutional Limitations.)

System of Local
Taxation in New
with the Tax
States.

York Compared

Systems of other

Systems of Local
Taxation in other
States.

Results of Experience.

recognised fundamental conditions of taxation-certainty, justice or equality, and economy-can be best accomplished by subjecting all property, real and personal, within the jurisdiction of the State, to ascertainment, valuation, and assessment. New York, however, by her Legislature and her courts, has held, in accordance with what has seemed to these authorities to be the dictates of justice and common sense, that the visible, tangible property of her citizens, situated beyond her territory, is beyond her jurisdiction, and is, therefore, not liable to State assessment and taxation; and recognising further the principle, that an individual should be taxed on what he owns, and not on what he owes, has allowed indebtedness in part to offset or diminish the valuation of assets.

Massachusetts, on the other hand, basing her tax code and practice upon the same assumption as New York, namely, the desirability of taxing all property of her citizens, endeavours to carry its application to a much greater extreme; inasmuch as this State claims the right, and practically exercises the power, to assess her citizens for not only so much of their personal property as is specifically within her limits and control, but also for so much as is undeniably beyond her territory, and, therefore, inferentially beyond her sovereignty and jurisdiction. The tax laws of Massachusetts, furthermore, do not allow indebtedness to offset or diminish tangible property, consigned goods only excepted.

In Pennsylvania, the system of local taxation is entirely different from that of either New York or Massachusetts, and far more liberal than the system of any of the other States; inasmuch as in that State, personal property is either wholly exempt from taxation, or is taxed to so small an extent, in comparison with New York and Massachusetts, as to practically amount to exemption. We have, therefore, in the three States of New York, Massachusetts, and Pennsylvania, the types, or representatives, of the various systems of local taxation as they exist in the United States.

The results of the experience of these three systems may be fairly stated as follows:-In Massachusetts, under her existing system, the revenue collected by taxation is larger in proportion to her population than in any other State, and larger, probably, than in any other country; amounting in 1870 to $14.35 per capita, as compared with $11.50 per capita in New York. The system under which this result is

effected is characterised by nearly all the citizens of that State with whom the commissioners have come in contact, as in the highest degree arbitrary, unequal, unjust, and in respect to personal property, notoriously ineffective. In the city of Boston, where, through the high character of officials and the permanent tenure of office, the laws are executed more efficiently than elsewhere, thirty per cent. or more of this latter class of property is acknowledged to escape assessment, while in the remainder of the State the proportion is known to be much greater.

In Pennsylvania, under her existing system of local taxation, less dissatisfaction is probably expressed, and less trouble reported by officials, than in any other State. Real estate is not regarded as unduly burdened; rents in her large cities are comparatively low; while, under the inducements offered by liberal legislation, population and wealth are very rapidly increasing; the gain in population from 1860 to 1870 having been 21.18 per cent., as compared with 12.94 per cent. for New York.

In the case of New York, no one, either officials or citizens, is satisfied with the existing system or its administration; and so apparent, moreover, are its defects, that the necessity of reform is almost universally acknowledged. But the com

missioners, who have made the system a matter of special study and inquiry, go further, and unqualifiedly assert that, as it exists to-day, it is more imperfect in theory and defective in administration than almost any system that has ever existed, and that its longer recognition and continuance is alike prejudicial to the material interest of the State and the morality of its people.*

In their previous report the commissioners collected and presented a large amount of evidence illustrative of the actual condition of affairs; but now, with another year's experience, and for the purpose of fully demonstrating the truth of their assertions, they would again briefly ask attention to the subject.

The property of New York, made subject to taxation, Actual Condition divides itself into two classes, real and personal.

REAL PROPERTY, embracing, according to the usual ac

*If this judgment may seem harsh, reference to the records of the constitutional convention of 1867-8 is only necessary to show that more severe language is made use of in the debates in respect to the system than any now employed by the commissioners; that of one of its leading members, for example, being as follows: "I insist that a people cannot prosper whose officers either work or tell lies. There is not an assessment roll now made out in this State that does not both work and tell lies."

of the New York System.